When debentures are converted into shares or new debentures, how is the number of shares or debentures to be issued determined?

Based on the actual proceeds received from the debentures at the time of issue

The correct answer is option 3- Based on the actual proceeds received from the debentures at the time of issue.

A company can redeem its debentures by converting them into shares or new class of debentures. If debentureholders find that the offer is beneficial to them, they can exercise their right of converting their debentures into shares or new class of debentures. These new shares or debentures can be issued at par, at a discount or at a premium. It should be noted that only the actual proceeds of debentures are to be taken into account for ascertaining the number of shares to be issued in lieu of the debentures to be converted. If debentures were originally issued at discount, the actual amount realised from them at the time of issue would be used as the basis for computing the actual number of shares to be issued. It may be noted that this method is applicable only to convertible debentures.